Heads up: the federal 25C Energy Efficient Home Improvement Tax Credit expired for systems installed after December 31, 2025. The One Big Beautiful Bill, signed in July 2025, moved the end date up from 2032 to the end of 2025. So if you install a heat pump, AC, or furnace in 2026, there’s no 25C credit on that install.
There’s still good news if you installed in 2025: you can claim the credit on your 2025 return, filed during the 2026 tax season. And California utility and state rebate programs still run, though their availability shifts during the year, so confirm current status before you count on any of them.
Here’s how the credit worked, who can still claim it, and what’s left for 2026 installs.
Rebate programs change fast. Federal, state, and utility incentives get reserved, paused, or repealed mid-cycle. Treat everything below as a starting point and confirm current availability with the IRS, SDG&E, and the California Energy Commission before you make a purchase decision. This isn’t tax advice.
The fast answer
The 25C credit ended for installs after December 31, 2025. The table below shows what the credit covered for qualifying 2025 installs (which you claim on your 2025 return). For a 2026 install, none of these federal amounts apply.
| Equipment | Max federal credit (2025 installs) | Efficiency requirement |
|---|---|---|
| Heat pump (ducted split) | $2,000 | 16+ SEER2, 9+ HSPF2 |
| Heat pump (mini-split) | $2,000 | 16+ SEER2, 9+ HSPF2 |
| Central AC (split) | $600 | 16+ SEER2 |
| Gas furnace | $600 | 97+ AFUE |
| Heat pump water heater | $2,000 | UEF 2.2+ |
| Insulation improvements | $1,200 | Various |
Annual cap: $1,200 for general energy improvements + $2,000 separately for heat pumps/water heaters/biomass stoves = $3,200 total annual maximum.
Important: the credit is non-refundable. It reduces your federal tax liability dollar-for-dollar, but doesn’t create a refund if you don’t owe federal taxes that year.
How the 25C credit actually works
The 25C credit was reformed and expanded under the Inflation Reduction Act of 2022, then cut short by the One Big Beautiful Bill in 2025. For qualifying installs through December 31, 2025, the structure was:
- 30% of qualified expenses for most improvements, capped by category
- Annual cap rather than lifetime cap (you could claim again in future years it was available)
- Applied via IRS Form 5695 with your federal tax return
- Originally authorized through 2032, but ended for installs after December 31, 2025
For HVAC specifically:
- Heat pumps: 30% of installed cost, capped at $2,000
- AC and furnaces: 30% of installed cost, capped at $600
- Equipment must meet specified efficiency standards (see below)
A $14,000 heat pump install with $4,200 of qualifying costs = $1,260 federal tax credit. A $9,000 heat pump install with $2,700 qualifying costs = $810 (under cap, so $810 actual).
What “qualified” means
Three requirements:
1. Equipment efficiency standard met. The system must meet the SEER2/HSPF2/AFUE thresholds above. Lower-efficiency equipment doesn’t qualify.
2. Energy Star Most Efficient certification OR similar. The IRS uses Energy Star’s “Most Efficient” tier as the reference for what qualifies. Check at energystar.gov before purchase.
3. Equipment placed in service by December 31, 2025. The credit is based on the install date, not the purchase or contract date. A system bought in December 2025 but not installed until January 2026 does not qualify, since the credit ended for installs after December 31, 2025.
What’s included in “qualified expenses”
The credit applies to the installed cost including:
- The equipment itself
- Labor for installation
- Refrigerant line set
- Electrical work for the installation
- Removal of old equipment
It does NOT typically apply to:
- Replacement of ductwork (separate insulation credit may apply)
- Thermostats (covered separately if part of the system)
- Diagnostic/repair work on existing systems
- Maintenance plans or warranties
Get itemized quotes that separate equipment + installation costs from other line items so you can document the qualified expense amount cleanly.
What’s left for 2026 installs
With the 25C credit gone for 2026, the federal piece is off the table for systems installed this year. State and utility programs still exist, but their availability has tightened. As of early 2026, single-family rebates through TECH Clean California and the income-qualified HEEHRA program were fully reserved across Southern California and moved to a waitlist, so they’re not something to count on at install time right now.
That leaves a moving target. SDG&E still runs some equipment rebates, and the income-qualified picture can change as funding cycles reset. The honest answer in 2026 is to confirm current availability before you assume any specific number.
For where these programs stand, see our 2026 heat pump rebate guide and the SDG&E eligibility breakdown, and verify current status directly with SDG&E and the California Energy Commission.
How to claim the credit (for a 2025 install)
If your system was installed and placed in service on or before December 31, 2025, you can still claim the credit on your 2025 return during the 2026 tax season. Three steps:
1. Keep documentation. Itemized invoice from your contractor showing equipment model numbers, installed cost breakdown, and install date. Manufacturer specification sheet showing the equipment meets the efficiency standard. Permit documentation from the install.
2. File IRS Form 5695 with your 2025 federal tax return. The form walks through the calculation: qualified expenses × 30%, then apply category caps.
3. Reduce your federal tax liability by the credit amount. If you owe $5,000 in federal taxes and have a $2,000 credit, you owe $3,000 instead. If you owe less than the credit, the credit doesn’t roll over (one-year-only credit).
Most tax software (TurboTax, H&R Block, FreeTaxUSA) handles Form 5695 within the standard interface. If you use a CPA, mention the credit specifically, they’ll file it correctly.
Common 25C mistakes
Four patterns that cost homeowners credit money:
1. Buying equipment that doesn’t quite meet efficiency requirements. A 14.3 SEER2 system is California code minimum but doesn’t qualify for the 25C credit (requires 16+). Worth paying the small upgrade premium to qualify.
2. Not separating equipment from non-qualifying expenses on the invoice. If the contractor lumps “$14,000 total” without itemization, the IRS expects you to document specifically what was equipment + install. Get itemized invoices.
3. Not registering the manufacturer warranty. Doesn’t affect 25C directly, but most homeowners doing one paperwork task miss the other. Both deserve attention at install time.
4. Forgetting to claim a 2025 install. The credit is claimed for the year the system was placed in service. If you installed in 2025, claim it on your 2025 return. Miss it and the credit is gone, and there’s no 25C credit on 2026 installs to fall back on.
What about heat pump water heaters
For 2025 installs, the $2,000 cap was per category, so you could stack:
- Heat pump (HVAC): up to $2,000
- Heat pump water heater: up to $2,000
A household that installed both in 2025 could claim up to $4,000 in federal credit on the 2025 return (subject to actual qualified expenses meeting the caps). For a 2026 install, the 25C credit no longer applies to either.
What changed and what’s ahead
The 25C credit was authorized through 2032 by the Inflation Reduction Act, then repealed early by the One Big Beautiful Bill in July 2025. It ended for systems installed after December 31, 2025.
There’s no federal 25C credit for HVAC in 2026. Geothermal heat pumps follow a separate path under Section 25D, which remains active. State and utility rebates still exist but their availability changes during the year, so confirm current status before you count on them.
FAQs
Is the 25C tax credit available in 2026?
No. The credit ended for systems installed after December 31, 2025. The One Big Beautiful Bill moved the expiration up from 2032. If you installed in 2025, you can still claim it on your 2025 return.
How much was the federal HVAC tax credit?
For qualifying 2025 installs: 30% of qualified equipment + installation cost. Capped at $2,000 for heat pumps and $600 for AC or furnaces per year. Total annual cap of $3,200 across all qualifying improvements. None of this applies to 2026 installs.
What HVAC systems qualified for the 25C tax credit?
Heat pumps with 16+ SEER2 and 9+ HSPF2. Central AC with 16+ SEER2. Gas furnaces with 97+ AFUE. All had to meet Energy Star Most Efficient tier or equivalent, and be installed by December 31, 2025.
Can I claim both the federal tax credit and SDG&E rebates?
For a 2025 install, yes, the 25C credit was independent of utility rebates. For a 2026 install there’s no 25C credit. SDG&E and state programs still exist but availability shifts during the year, so confirm current status before counting on them.
How do I claim the 25C tax credit for a 2025 install?
File IRS Form 5695 with your 2025 federal tax return. Keep itemized invoices and manufacturer specifications as documentation.
Is the 25C credit refundable?
No. The credit reduces tax liability but doesn’t create a refund. If your federal tax owed is less than the credit, you don’t get the unused portion back.
What if I didn’t owe federal taxes in 2025?
The credit is non-refundable, so it only helped if you had federal tax liability to offset. Lower-income households who don’t owe federal income tax couldn’t use it. State and utility rebates don’t depend on tax liability, but their single-family funds were largely reserved across Southern California by early 2026, so check current availability.
Does my contractor handle the 25C paperwork?
No. For a 2025 install, the contractor provides the equipment specs and itemized invoice; you file Form 5695 yourself or through your tax preparer. There’s no 25C filing for a 2026 install.
How long was the 25C credit available?
Originally authorized through 2032 under the Inflation Reduction Act, but repealed early by the One Big Beautiful Bill. It ended for systems installed after December 31, 2025.
When to call us
The 25C credit is gone for 2026 installs, but a high-efficiency heat pump still cuts your energy bills, and the rebate picture can shift as funding cycles reset. We’ll tell you straight what’s actually available for your situation right now and document the install accordingly. Call (442) 777-6440 for a free in-home assessment.